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The combination seemed unthinkable just a few years ago. Nokia envisioned itself as a substantial rival to Redmond, threatening to head off its computing dominance as the power of desktop computing shifted to pocket-size devices. But a series of miscues substantially weakened the company, leaving it little choice but to team up with the world’s largest software maker.

Although Nokia has pledged to continue using the Symbian OS in both handhelds and phones, the company has now significantly tied its fortunes to the rival it once denounced.

In doing so, Nokia is making a tough bet. The company is gambling that Microsoft’s operating system has advanced far enough to power a decent cell phone, while still having enough rough edges that Nokia can carve out a niche by going beyond the standard Windows Phone software. In doing so, Nokia hopes it can avoid the fate of being just another clone cranking out hardware on Microsoft’s behalf.

Microsoft, meanwhile, has scored a significant win in its decade-long quest to crack the mobile market. In wooing Nokia, Microsoft has brought a one-time rival into its fold and ideally gained a new creative force as it tries to move its PC empire into the burgeoning market for cell phones.

“Nokia always did great work, and so we lusted after some of those things that they do well,” Ballmer told reporters at Monday’s launch.

The partnership is not totally out of the blue, of course. The two companies offered a glimpse at the detente last year, announcing a pact that allowed Symbian OS-based smartphones to connect directly with Microsoft’s Exchange servers for corporate e-mail and calendar information.

In its secret meetings, Nokia execs managed to convince their Microsoft counterparts to build several software hooks they needed into the latest version of Windows Phone. The changes allowed Nokia to add some handy features into the Windows version of the N series phones. One new trick allows Nokia owners to ignore an incoming cell call, instead sending a brief text message to the caller. A second feature allows Nokia owners to navigate multiple voice-mail accounts using VCR-like buttons, rather than having to know that “5” is the key for fast forward or remember that “7” saves voice mail at work, but deletes it at home.

A key question, though, is whether Microsoft will give Nokia enough room to innovate in the future, now that it has successfully wooed the device maker. By going with Microsoft, Nokia is letting go of one of the key differentiators between its products and those from better-known competitors.

Elop said he understands the risk and only undertook it with assurances that Nokia would be able to build enough software on top of the OS to make his products stand out.

“It was the only way we felt it could work for us,” he said at the Monday press conference.

Executives from both companies suggest that the Nokia-Microsoft relationship, forged at those meetings in Cannes and New Orleans, will continue to be close. But it remains to be seen whether Nokia will retain its individuality now that it has the Microsoft imprimatur.

Wirt acknowledges that there are no formal procedures in place that ensure that Nokia will get the things it asks for the next time, or the time after that. “It’s functioned more as a relationship-type thing.”

Elop said Nokia could try to patent particularly strong advances, but in general he said the company believes the best way to stay ahead is to keep cranking out new products.

“We have ideas about many things that we didn’t get to do in this version,” he assured reporters.

But for all its ideas, Nokia is still a relatively small company. And given that it has pledged continued support for the Symbian OS, it must now divide its limited engineering resources between two incompatible efforts.

Elop acknowledged that the challenges of developing for two entirely different operating systems are enough to keep his firm hopping. He emphatically shook his head back and forth when asked if Android and MeeGo-based Nokia phones might be next.

This fictional article was created by taking an actual article from 2005 about Palm and Microsoft (Palm’s tale of Treo intrigue – CNET News) and changing the words “Palm” for” Nokia”, and “Colligan” for “Elop”, “Ballmer” for “Gates”, “Treo” for N series (or Nokia) and “Symbian” for “PalmOS”. A few paragraphs about the mechanics of the deal process were deleted.

Good golly that's freaky. I kept wondering when you were going to stop talking about Nokia and start talking about Palm right up until the very end!

http://twitter.com/judsontwit @judsontwit

(Sorry, ID lost the last half of my comment when I logged in.)

Nokia plays a similar (nearly identical?) role to Palm, but is Microsoft the same company it was five years ago?

asymco

Is Microsoft the same company? That's fairly easy to answer by going through this checklist:

Are any of its resources different?
Are any of its processes different?
Are any of its priorities different?

If not then it is the same company.

berult

True. That leaves the contextual dynamics as the only variable here. The observer leaves an indelible mark on an experiment. In this instance the observer rides the crest of 'smart platforms development' and makes the whole allegory …statutory platform dependent.

So a pertinent question would seek to probe observational slants as the sole variable, and relegate actors to a universal constant. Including Apple I might add, for they have started an experiment no amount of creative genius can now stop in its tracks, and undo. A Nokia-Microsoft partnership is viable if the market's singular dynamics, the entropic observer, can feed and grow on it. I believe it can …at its heart's content.

Well, 2003 is not 2011. Microsoft is losing in key areas: mobile, and tablets, and they know it. OEMs are not enough They need killer device, like Droid was for Android, Nokia could do that. Nokia, also, may do real competitor to iPad. Now no one is capable of doing it. Now Nokia and MS fortunes are bound together, if they can't deliver, they are dead, and MS will take its place like IBM is right now – service company.

Hamranhansenhansen

If anything, their position in mobiles has worsened because Windows Mobile 8, 9, and 10 were done by Google.

http://twitter.com/cdelrosso @cdelrosso

and if this time Microsoft fails with their mobile strategy they risk a lot..

Waveney

G'day Horace.
I know you are not stating so specifically, but it appears you suspect that the Nokia/MS deal is more than a little illogical shall we say, given the historical evidence. My perspective, born out of the MS/Sendo(where I worked) deal, is that there is always another conversation going on at MS – and it does not involve mutual backscratching.
Having failed to gain market presence let alone dominance, with there actions to date in the new smartphone era by a multiplicity of small moves and acquisitions, they are now embarking on a nuclear option. Having 'nothing to lose' seems foolhardy at best. The allegory is certainly apt.
I'm not trying to say MS is doomed, with their cash pile they could make petrol from farts and save the world, but it does lend credence to those that have been predicting their fall and brings to mind all those tales of dysfunctional inter-department management problems.
I read somewhere the other day that every 10m iPads sold is a loss of $1B in revenue to MS. Add in iPod Touch and iPhones and I suspect they are hurting more than we know.
Sorry, nitpick time – an allegory is by definition 'fictional'

asymco

I know calling a allegory fictional is redundant, but I wanted to make it clear upfront that I was not entering into a role of journalist.

FalKirk

I'll take some of the blame for the redundancy, if you like. Sometimes I'm a little slow on the uptake and I think it was very wise of Horace to sacrifice the technically correct definition of the word "paradox" for the sake of clarity. The warning that "The following is a work of fiction" was much needed and much appreciated.

http://twitter.com/PaulMaxime @PaulMaxime

This was quite an amazing read. I was wondering when it was going to sound fictional and it never did.

George Bailey

This is the internet. If a post isn't clearly labeled as fiction or sarcasm or whatever, a whole bunch of people will take it literally and start frothing at the mouth as they pound out their scathing "corrections."

http://twitter.com/charlesarthur @charlesarthur

@waveney the "lost revenue" estimate is mine: to be precise it's that analysts reckon tablet sales are knocking off around 25m PCs from sale this year, which equates to about $1bn of *profit* for Microsoft (and roughly $1.5bn of revenue.) That's for Windows client alone – I didn't do the estimate for Office, though arguably should.

Though as you say, in that wonderful turn of phrase, they could make petrol from farts with that cash pile. PC sales are growing, so Microsoft profits will likely follow happily. Just not as fast as otherwise.

Oh, and do email me about MS/Sendo…

Niilolainen

Great analysis. But I guess the PCs displaced (netbooks) likely wouldn't have had a high Office attach rate anyway?

Due to my work, I am really curious about the impact of this on Intel…

http://twitter.com/charlesarthur @charlesarthur

The computers displaced are notebooks and netbooks among consumers, Gartner reckons, so the attach rate for Office might not be very high, as you suggest. (Still need to do that analysis.)

Effect on Intel – well, if you have Intel's quarterly numbers in a nice spreadsheet, I can plug them into mine and we'll see what drops out. Email: charles.arthur@guardian.co.uk.

Laurent Giroud

I think this assumption might be somewhat contradicted by the fact that Pages for iPad has been one of the most grossing applications during several weeks. It's true that It's not part of the 200 top grossing apps as of now but 60% of these apps are games which I think we can safely assume buyers tend to buy them in bigger quantities than office applications: you buy these only once, but you will buy a new game once you've finished the current one so Pages would necessarily get drowned given enough new "disposable" applications are periodically produced.

I'd love Apple to publish more informations about their software sales, but I guess I shouldn't hold my breath.

davel

You mention Palm.

Will the new Noki(Microsoft) CEO have the guts to do what Palm did and build its own OS while using Windows as a placeholder?

Considering Microsofts recent forays in mobile I would hedge my bets if I were them.

I am specifically thinking of Danger which lasted all of 5 minutes.

newtonrj

Horace,

The extended speculative question: what suitor would purchase an anemic Nokia 2 years downstream this decision? Certainly the value proposition for purchase would not be the Palm O/S, it would be manufacturing, patient portfolio and possibly engineering (hot tubs aside). Pondering MS itself, Google, Apple, HTC or Dell. -RJ

asymco

Historically, the fate of struggling mobile phone vendors has not been kind.

The reason is that consolidation does not makes sense when an industry is growing. There is little value in capacity since capacity is easy to build. There is little value in distribution since distribution is easy to build. There is only value in brand and IP and platforms.

Horrific management failure was a symptom of a deeper failure to recognize that the basis of competition was shifting. Mobile software was treated as sustaining to an operator-centered business model. The first step to therapy would have been to decide that the business model was wrong.

It should be noted that no incumbent mobile phone vendor treated software as a disruption and the only major software platforms have been built by companies outside the telecom industry. (This in spite of the fact that as outsiders they had no customers, assets, competencies or relationships to leverage.)

r.d

Software products cannot be sustained for long time because the
naivety or lack of knowledge of upper management.
plus software is hard especially c++ APIs compared to Cocoa.
even Microsoft had no foresight in their earlier APIs.
Linux people have no history of supporting backward compatibility.

Plus they wanted Microsoft model with licensing from Hardware patents
because that was the only successful business of the past 30 years.

Oomu

Linux people HAVE experience of backward compatibility !

Posix and x11 have Decades of backward compatibility and evolutions. The kernel maintains binary compatibility for YEARS and qt/gtk are conceived to allows Linux systems to maintain compatibility both of source and binary.

You have that experience in corporate product if you buy redhat enterprise Linux for example or IBM services.

Don't spread lies.

http://twitter.com/aegisdesign @aegisdesign

"Linux people have no history of supporting backward compatibility. "

Oh lord…!

Nokia's Qt development framework is heavily versioned. If your code relies on a Qt 4.7 feature, you import that version's header. Furthermore, the Qt installer for Symbian an Maemo installs the right libraries required by the app alongside it.

It's also extremely rich suggesting Apple are better at it. Ask any Apple developer who was relying on Carbon in the 64bit realm or has been stung by Apple's 'private API' change in the App Store.

Sander van der Wal

Writing good API's is hard. And because a good API hides the implementation itself, the implementation language is also irrelevant, it being hidden.

Davel

Wow. What a disaster. If true it makes sense. It also explains why they went out and got a software guy.

Turf wars can be a terrible thing.

Guest

Brilliant!

chano

Well done Horace.
Fascinating speculation.
The more things change, the more they stay the same it seems … as the French say.

yet another steve

MS may not be a different company. But their market position is very different. If Bill Gates were around I think there'd be the intelligence and decisiveness necessary to succeed here (they way they went 180 degrees on the internet in the 90s.)

But Ballmer is their John Sculley. Administers the existing franchise well (grows earnings impressively) but lacks decisive technical leadership.

His Shadow

Bah. Bill Gates rode shotgun on the brutal stagnation of IE, the explosion of malware (an industry if not created by, certainly given wings by Microsoft) and the most ridiculous of attempts at "Windows Everywhere" while failing on all levels to integrate their divergent code bases.

I'll say it: Gates is overrated.

Davel

You do not know history then. Bill gates/Microsoft bested all comers – IBM, lotus, wordperfect, apple,etc

All were defeated by Microsoft. Perhaps not technically, but with mkt savvy, use of lawyers, marketing. A poster above noted Microsoft doing a 180 on the browser and HTML.

Niilolainen

Great read

PatrickG

This explains the sense of déjà vu with the Nokia/Microsoft announcement. Thanks Horace!

Ted_T

It does seem that Nokia's Microsoftian future is preordained and it isn't good.

Unfortunately you could paint an equally dismal scenario for a switched to Android Nokia. And Nokia has repeatedly proven that it was incapable of producing a mobile OS capable of competing with iOS internally. Their one real chance of a future went away when they didn't buy Palm/WebOS. Of course even that wouldn't have given them any guarantees, but at least they would have had a fighting chance, now gone.

Nokia's one thin ray of hope is this: for all its repeated mobile failures, Microsoft must realize that the competition from Android/iOS is now an existential threat, as the PC ecosystem increasingly moves to mobile. Whether that extra incentive makes Microsoft a stronger mobile competitor in the future remains to be seen. The lack of software updates to the initial wave of Windows 7 Phone devices hint at an answer of "no".